BEIS Committee report on executive pay packs quite a punch!

The House of Commons Business, Energy and Industrial Strategy (BEIS) Committee have this week published a report and recommendations on reducing the pay gap between chief executives and employees. It includes an update on trends in executive pay and examines the UK Government’s performance in addressing the gap.

The report packs quite a punch and is direct in its encouragement for the new regulator due to replace the “underpowered and passive” Financial Reporting Council (FRC) to “be tough on those companies that behave unreasonably on executive pay”.  

Key take-aways from the report include:

·       The structure of executive pay has become too dominated by incentive-based elements that do not effectively drive decision making in the long term interests of the company.  

·       A simpler structure should be adopted based on fixed term salary plus deferred shares, vesting over a long period, and a much reduced element of variable pay, which should be more aligned to the wider social responsibilities of companies. 

·       There should be a much stronger link between executive and employee pay e.g. through profit sharing schemes. 

·       There should be an employee representative on the remuneration committee.  

·       Pay ratio reporting should be applied more broadly e.g. to partnerships such as the UK’s main law firms and professional service providers.   

·       There is a lack of confidence in remuneration committees and institutional investors in exercising their stewardship functions in a way that consistently bears down on executive pay.  

·       The primary responsibility for changing the environment on executive pay rests with asset owners – the pension funds that invest our money for the long term.  

·       Overall greater transparency, accountability and responsibility is required.  

Full details of the report can be found at http://bit.ly/2HVRZJX